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SOLUTION MANUAL
Financial Statement Analysis & Valuation
6th Edition
Easton | McAnally | Sommers
,@ProfdocDigitalLibraries <Best Online Study Materials>
The 6th edition has 15 modules.
1. Framework for Analysis and Valuation
2. Review of Business Activities and Financial Statements
3. Profitability Analysis and Interpretation
4. Credit Risk Analysis and Interpretation
5. Revenue Recognition and Operating Income
6. Inventories, Accounts Payable, and Long-Term Assets
7. Liability Recognition and Nonowner Financing
8. Equity Recognition and Owner Financing
9. Intercorporate Investments
10. Analyzing Leases, Pensions, and Taxes
11. Financial Statement Forecasting
12. Cost of Capital and Valuation Basics
13. Cash-Flow-Based Valuation
14. Operating-Income-Based Valuation
15. Market-Based Valuation
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Appendix B
Solution Manual for Financial Statement Analysis & Valuation, 6th edition By Peter D. Easton
Computing and Analyzing
Cash Flows
Learning Objectives – Coverage by question
True/False
LO1 – Describe the framework for the statement of 1-9, 17,
1, 2, 5, 12-14, 18
cash flows. 18, 20, 21, 26
LO2 – Determine and analyze net cash flows from
4, 6, 8-11, 15 6-11, 19
operating activities.
LO3 – Determine and analyze net cash flows from
3, 14-16 17-19
investing activities.
LO4 – Determine and analyze net cash flows from
3, 13, 17-19 20-22
financing activities.
LO5 – Examine and interpret cash flow information.
LO6 – Compute and interpret ratios based on
20, 21 23-25
operating cash flows.
LO7 – Explain and construct a direct method statement
7 12-16
of cash flows (Appendix BB).
These questions are available to assign in myBusinessCourse.
, @ProfdocDigitalLibraries <Best Online Study Materials>
Appendix B: Computing and Analyzing Cash Flows
True/False
Topic: Cash and Cash Equivalents
LO: 1
1. The statement of cash flows encompasses only a firm’s cash because cash equivalents are really
marketable securities, which are short-term investments.
Answer: False
Rationale: Cash equivalents may be marketable securities but because they have very short
maturities, they are treated like cash.
Topic: Sections in Statement of Cash Flows
LO: 1
2. The statement of cash flows separates cash flows into operating, nonoperating, and financing
categories.
Answer: False
Rationale: The three sections are operating, investing and financing.
Topic: Sections in Statement of Cash Flows
LO: 3, 4
3. Information about noncash investing and financing activities must be disclosed in a schedule that is
separate from the statement of cash flows.
Answer: True
Rationale: Investors want to know about all the company’s investing and financing, not just those
transactions that required an actual cash outlay.
Topic: Direct versus Indirect Statement of Cash Flows
LO: 2
4. Two different methods of determining and presenting the net cash flow from operating activities are
the direct method and the reconciliation method.
Answer: False
Rationale: The two methods are the direct and indirect method.
Topic: Format of the Statement of Cash Flows
LO: 1
5. The net change in cash during a period must equal the net change in all other balance sheet
accounts.
Answer: True
Rationale: The net change in cash affected other accounts via operating, investing, and financing
transactions. Given double-entry bookkeeping, the two must balance.
SOLUTION MANUAL
Financial Statement Analysis & Valuation
6th Edition
Easton | McAnally | Sommers
,@ProfdocDigitalLibraries <Best Online Study Materials>
The 6th edition has 15 modules.
1. Framework for Analysis and Valuation
2. Review of Business Activities and Financial Statements
3. Profitability Analysis and Interpretation
4. Credit Risk Analysis and Interpretation
5. Revenue Recognition and Operating Income
6. Inventories, Accounts Payable, and Long-Term Assets
7. Liability Recognition and Nonowner Financing
8. Equity Recognition and Owner Financing
9. Intercorporate Investments
10. Analyzing Leases, Pensions, and Taxes
11. Financial Statement Forecasting
12. Cost of Capital and Valuation Basics
13. Cash-Flow-Based Valuation
14. Operating-Income-Based Valuation
15. Market-Based Valuation
,@ProfdocDigitalLibraries <Best Online Study Materials>
Appendix B
Solution Manual for Financial Statement Analysis & Valuation, 6th edition By Peter D. Easton
Computing and Analyzing
Cash Flows
Learning Objectives – Coverage by question
True/False
LO1 – Describe the framework for the statement of 1-9, 17,
1, 2, 5, 12-14, 18
cash flows. 18, 20, 21, 26
LO2 – Determine and analyze net cash flows from
4, 6, 8-11, 15 6-11, 19
operating activities.
LO3 – Determine and analyze net cash flows from
3, 14-16 17-19
investing activities.
LO4 – Determine and analyze net cash flows from
3, 13, 17-19 20-22
financing activities.
LO5 – Examine and interpret cash flow information.
LO6 – Compute and interpret ratios based on
20, 21 23-25
operating cash flows.
LO7 – Explain and construct a direct method statement
7 12-16
of cash flows (Appendix BB).
These questions are available to assign in myBusinessCourse.
, @ProfdocDigitalLibraries <Best Online Study Materials>
Appendix B: Computing and Analyzing Cash Flows
True/False
Topic: Cash and Cash Equivalents
LO: 1
1. The statement of cash flows encompasses only a firm’s cash because cash equivalents are really
marketable securities, which are short-term investments.
Answer: False
Rationale: Cash equivalents may be marketable securities but because they have very short
maturities, they are treated like cash.
Topic: Sections in Statement of Cash Flows
LO: 1
2. The statement of cash flows separates cash flows into operating, nonoperating, and financing
categories.
Answer: False
Rationale: The three sections are operating, investing and financing.
Topic: Sections in Statement of Cash Flows
LO: 3, 4
3. Information about noncash investing and financing activities must be disclosed in a schedule that is
separate from the statement of cash flows.
Answer: True
Rationale: Investors want to know about all the company’s investing and financing, not just those
transactions that required an actual cash outlay.
Topic: Direct versus Indirect Statement of Cash Flows
LO: 2
4. Two different methods of determining and presenting the net cash flow from operating activities are
the direct method and the reconciliation method.
Answer: False
Rationale: The two methods are the direct and indirect method.
Topic: Format of the Statement of Cash Flows
LO: 1
5. The net change in cash during a period must equal the net change in all other balance sheet
accounts.
Answer: True
Rationale: The net change in cash affected other accounts via operating, investing, and financing
transactions. Given double-entry bookkeeping, the two must balance.
